Banks To Bail Out B&B
Six of Britain’s biggest banks have agreed to assist B&B. Under pressure from the FSA they have agreed to ’sub-underwrite’ share purchases in the beleaguered bank. It is now highly unlikely that shareholders will take up the rights issue as shares in the bank are worth less than they are being offered for.
Troubled bank Bradford & Bingley looked to be on the point of rescue on Tuesday night when six of Britain’s biggest banks agreed to pull it out of the fire by buying a large portion of shares in the bank.
Bradford & Bingley is Britain’s biggest buy-to-let mortgage lender, and this has given cause for concern given the state of the mortgage market and dwindling enthusiasm for buy-to-let purchases. About £24bn of B&B’s total mortgage book of £40bn are buy-to-let mortgages.
Bradford & Bingley made a £400m rights issue, but this has once been subject to a lowering of the offer price, and still the market share price has fallen below the rights issue price. With the share price so low – and 90% down on a year ago – there is no chance that shareholders will stump up the required amount.
The six banks are Abbey, Barclays, HBOS, HSBC, Lloyds TSB and Royal Bank of Scotland. They were put under pressure by the Financial Services Authority to assist B&B, and have said they will buy shares which underwriters UBS and Citigroup do not buy. It is a procedure called ‘sub-underwriting’. The end result is likely to be that the six will own 30% of B&B.
The FSA wants to be seen to be acting more positively than it did during the Northern Rock crisis and the banks have been told that such a move will help to boost confidence in banks, as the threat of recession looms in the UK. B&B says it is not going to be a repeat of Northern Rock, and claims it is being targeted by share speculators.
B&B has a large number of small shareholders who received free shares upon conversion to a bank in 2000. The bank says it has seen no sign of a mass withdrawal of funds as Northern Rock suffered. People are still opening accounts.
Bradford and Bingley has around two million savers, a million mortgage customers, and 3,000 employees in 200 branches.
